MULTIPLE CHOICE QUESTIONS 1. The legal contract between the issuing corporation and the bondholders is called the bond indenture A) True B) False 2.One of the similarities of bond and equity financing is that both dividends and equity distribution payments are tax deductible. C) True D) False 3. Interest on bonds is tax deductible. E) True >F) False 2. The relationship between the market rate of a bond and the rate of return on the borrowed funds affects the company's return on equity. A) True B) False 3. A disadvantage of bond financing over equity financing is the burden on the cash flows of the company. A) True B) False 4. Term bonds are scheduled for maturity on one specified date, whereas serial bonds mature at more than one date. A) True B) False 6. On January 1, a company issued and sold a $400,000,7%, 10-year bond pavable, and received proceeds of $396,000. Interest is payable each June 30 and December 31. The company uses the straight-line method to amortize the discount. The journal entry to record the first interest payment is: A) Debit Bond Interest Expense S14,000; credit Cash $14.000. B) Debit Bond Interest Expense S14.200: credit Cash $14.000; credit Discount on 6. On January 1, a company issued and sold a $400,000, 7%, 10-year bond payable, and received proceeds of $396,000. Interest is payable each June 30 and December 31. The company uses the straight-line method to amortize the discount. The journal entry to record the first interest payment is: A) Debit Bond Interest Expense $14,000; credit Cash $14,000. B) Debit Bond Interest Expense $14.200: credit Cash $14,000; credit Discount on